CouponCabin wants to move back to Chicago — if state suspends Internet tax

Scott Kluth: 'Everyone would move back as well,' the CEO says of other firms that have left Illinois.

(Crain's) — CouponCabin.com, one of several online marketers that fled the state after Illinois cracked down on collection of sales taxes from Internet retailers this year, would return to Chicago promptly if Congress passed a national online-sales-tax bill, its CEO says.

“My guess is everyone would move back as well,” says Scott Kluth, the firm's founder and chief executive, who moved the company and all of its employees to Whiting, Ind., earlier this year.

While aimed primarily at helping brick-and-mortar stores compete with online retailers, legislation introduced in the U.S. Senate by Sen. Richard Durbin, D-Ill., and several Republican co-sponsors this month also would erase a problem that the Illinois law created for coupon websites like CouponCabin.

“It's a bill that's going to help us across the board,” the senator said at a news conference with Illinois retailers Wednesday in Washington, D.C., to tout the legislation. While passage is far from certain, supporters of the bill are optimistic that its bipartisan support will bring the long-running controversy to an end.

Illinois became the focal point of the fight over Internet sales taxes after the state said online retailers whose sales originated from Illinois-based websites had to collect sales taxes on transactions by Illinois buyers. While California passed a similar bill, it delayed implementation for a year after Seattle-based Amazon.com Inc. said it would lobby for a national online sales tax.

“We sure would love to get the Illinois law paused” by that same kind of moratorium, Mr. Kluth says.

While costs are cheaper in his new home state, it's been harder to find qualified workers for the high-tech firm, he says. Also, even though Whiting is less than 25 miles from downtown Chicago — Schaumburg is farther from the Loop — it's a 90-minute commute for some employees who still live in Illinois. “It's a big drive,” he says.

Mr. Durbin's Marketplace Fairness Act would close a loophole created by Supreme Court rulings that said online retailers can't be forced to collect sales taxes if they have no physical presence in the buyer's state. While buyers are the ones who actually owe sales taxes, they rarely pay, putting traditional retail stores at a big disadvantage, especially in a state like Illinois with high sales tax rates.

The Illinois law led Internet retailers with no physical presence in Illinois to say they would stop doing business with CouponCabin.com and other online coupon clearinghouses in the state, prompting several of the biggest to move across the border.

“There's no law that says they have to continue to work with me,” noted Mr. Kluth.

Illinois had hundreds of so-called affiliated marketing websites, and several of the biggest ones moved just across the state line. They include FatWallet Inc., now based in Beloit, Wis., and Mr. Rebates Inc., which is now in Highland, Ind. “A lot of the small ones shut down operations,” said Mr. Kluth, whose firm raised $54 million last month from investors led by Baltimore investment fund JMI Equity.

Even though CouponCabin moved to Indiana, about 20 of the roughly 1,500 online retailers stopped doing business with the firm out of fear that somehow there could still be a connection to Illinois that would force them to collect sales taxes. “We're an Indiana corporation,” said Mr. Kluth, but “it's up to them to work with us or not.”

Mr. Durbin's bill has picked up 10 co-sponsors so far, split evenly between Democrats and Republicans. Senate Majority Leader Harry Reid, D-Nev., also supports the legislation, said Mr. Durbin, the Senate's second-ranking Democrat, at the news conference. But, he said, “We have to do a lot of work before we are ready to bring it up on the floor. We need a lot more co-sponsors.”